113-Will Young Farmers work for Nothing?


Back to the future

Back to the Future, no really the movie.  It came out 30 years ago. And, at the end of the movie they leaped ahead 30 years to October 2015.

Is agriculture back to a 1980’s situation?  No not yet in my opinion.  Difference is interest rates, but this time it may be profitability with high costs low income.

Commodity Bust????  China is hurting, stock market down, not good, not good at all.

Since 1774, commodities have been trending lower in constant dollars and the spike upwards have happened during times of war.  Maybe there is a war in the future?  Cannot count on that.

Now before you get all upset I know there are young farmers who survived when they started low prices and LDPs, etc. but this is a profitability squeeze.  Low prices can be survived if expenses are also low.  Right now that is not the case.

So the question is will you work for nothing for several years?  Many will, lots want to farm bad enough they would almost pay someone to be able to farm.  And, some will work 2 jobs to make it work.  But, some won’t or their spouse won’t.  If this period of low to no profitability stays with agriculture, especially grain agriculture for awhile it could get ugly out there.

Deflationary World economy right now.  Most of the World is getting older and not replacing itself.  Japan, Russia, China, Europe, United States.  Exception is Muslim countries and some really poor third world economy countries where your children are your social security and India.

Deflation makes a profit hard to come by in Agriculture.  That is why they have been leaving the farm for centuries now.

Lots of young people have come back to the farm in the recent years and one reason was because their was enough income to support another family off the same farm.  So do they stay if the money goes?  Do their spouses want to stay?

If Agriculture’s profitability drops we will also see a reduction in Agri-Business jobs.  Salaries will go down or at the least stay flat for several years in a row.  You will see a reduction in jobs.  Crop input retail store now may have a Plant Manager, an Account Manager, and a Salesman, in the future those could be all rolled into one job.  District Seed Managers could have larger districts, and less layers of management in the future.  Machinery Dealers selling less machinery don’t need as many salesman, selling less machinery less machinery to set up in the shop, and lots of recent new machinery means less shop work.

Take the money away from farmers and lots of people get hurt. 

Back in the 1980s when the banks started to have trouble is when the aid really started to go to the farmers.  First farmers to go under were out of luck, but as banks and rural businesses started to go down help came agriculture’s way.

Today it is a little different.  Can big agribusinesses adjust like family owned agribusinesses did in the 80s???

How does this affect farmers?

Machinery rolling, warranties made for no repair bills.  I could do a whole podcast on this alone.  John Deere starting to take some steps along with other machinery manufacturers with warranties on slightly used stuff.  Special lease deals, especially on specific pieces of equipment.

I also discuss if profitability is a problem the different ways you can handle the situation.

What about cash rents??  Still seeing ground change hands in my neighborhood for big dollars.

Where to from here with the markets???????

Back to young farmers.  Appears to me central Illinois non-land costs are $225 higher in 2016 than in 2006.  With expenses that high even $4.25 corn and $10.00 soybeans there is little profit.

Why does land still stay up in value?  With no place else to put money with any kind of return and the fact the risk of total loss with land is low, even 50% loss is low, land is holding it’s value.

Now some of these family operations maybe are going to have too many family members getting a slice of the pie.  They will either need less slices, everybody takes a smaller slice, or a bigger pie.

Other cases it is who will leave the farm income stream, not necessarily the farm but the income stream.  You will also see some operations split apart.  Hard times = hard choices.

So what about the really big boys you ask?????

Probably if they go down another big boy or several boys just eat them up.  Once a Landlord has experienced the high cash rent world they rarely leave it.  I can also see outside money buying agricultural assets if the stock market stumbles.  Land is not the quickest or maybe easiest way to create wealth, but good farmland is a good way to store wealth, especially family wealth.  You can make trusts that prevent heirs from losing it and can skip a generation or two of inheritance taxes.  Not a bad deal for family wealth.

Cheap interest rates have also raised the price of entry into farming and ranching.  Maybe you have low interest but asset costs are very high.

So do you have a plan to stay in farming and ranching?  An off farm job does not mean you still cannot farm.

Just remember the last 10 years may have been the best 10 years you may ever had farmed in.

Just remember that.

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